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U.S. carriers file for bankruptcy
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YOUR E-MAIL ALERTSNEW YORK, NY (CNN) -- On a grim day for America's beleaguered commercial aviation industry, both Delta Air Lines and Northwest Airlines have filed for bankruptcy protection trying to stem a hemorrhage of financial losses aggravated by high fuel prices and price pressure from lower-cost carriers. Both Atlanta-based Delta, the nation's third-largest airline, and Detroit-based Northwest, the No. 4 carrier, reassured passengers that they would continue to fly as usual and would retain their frequent flier programs while they reorganize under Chapter 11 of the bankruptcy code, which will protect the airlines from creditors while they restructure. But stockholders of the two carriers are likely to see the value of their holdings vanish. Delta's stock was worth just 71 cents a share at the close of trading Wednesday, before the bankruptcy announcement; Northwest's closing price was $1.87. Reorganization is also likely to be a nervous time for more than 90,000 people who work at the two airlines, if Delta and Northwest eliminate jobs or cut wages to better compete with lower-cost rivals. Three of the U.S.'s four largest airlines are now operating in bankruptcy. United, the second-largest carrier, has been in Chapter 11 for almost three years. With US Airways also in bankruptcy, there are now four carriers in Chapter 11, representing nearly half of the nation's airline capacity, according to an analysis by the financial firm Bear Stearns. The Air Transport Association, an industry group, said U.S. carriers together lost a staggering $32.3 billion from 2001 to 2004, as they struggled to come back after the September 11, 2001, terrorist attacks. Some estimates put this year's red ink at $9 billion to $10 billion. Delta has been struggling for more than a year to stay out of bankruptcy court, cutting costs and winning wage concessions from its employees. The company closed a hub in Dallas-Fort Worth, cut back operations at another in Cincinnati and sold a subsidiary regional carrier, Atlantic Southeast. But in the end, a major spike in fuel prices ate up much of those savings. "Hurricane Katrina was probably the last straw," said Ray Neidl, an analyst with Calyon Securities. "Nobody could have predicted 60-dollar, 70-dollar-a-barrel oil." In a statement announcing its bankruptcy filing, Delta said it had been "ahead of schedule" in trying to wring $5 billion in annual costs from its balance sheet by next year, but the effort was "outpaced" by sharply higher fuel costs and price pressure driving down revenues. "Delta's financial problems are severe, but by no means insurmountable," said Gerald Grinstein, Delta's chief executive officer, in a statement. "We are optimistic about our future because we have been working for months on a business plan that builds on the substantial improvements we've already made and demonstrates that Delta can return to profitability once the company is able to restructure appropriately." Delta announced that it has secured more than $2 billion in financing so the airline can keep operating while it reorganizes. Northwest, too, cited soaring fuel prices as a contributing factor to its bankruptcy filing, saying its fuel bill for this year will be $3.3 billion, 50 percent more than last year and more than double what it spent on fuel in 2003. "We had developed a plan to restructure Northwest outside of Chapter 11 and have been implementing that plan," said Doug Steenland, the airline's president and chief executive officer, in a statement. "Unfortunately, in addition to an uncompetitive cost structure, our efforts have been overtaken by skyrocketing fuel costs." Northwest is also in the middle of a strike by the Aircraft Mechanics Fraternal Association, which represents 4,400 of its mechanics and ground crew members. AMFA members took to the picket lines in August after they could not reach an agreement with the airline on $176 million in cost savings, including steep wage cuts and job losses, which Northwest said it needed as part of its quest to cut $1.1 billion in annual costs. The airline has continued to operate with replacement workers and said the labor dispute was unrelated to its bankruptcy filing. Delta, which operates major domestic hubs in Atlanta, Cincinnati and Salt Lake City, flies 340,000 passengers on about 1,870 flights a day; Northwest, which has domestic hubs in Detroit, Minneapolis-St. Paul and Memphis, carries about 160,000 people on 1,450 daily flights. -- CNN Money Senior Writer Chris Isidore contributed to this report 
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